Removing the FCPA facilitation payments exception: enforcement tools for a cleaner business as usual.

• Author: Bonstead, Chad
• Position: Foreign Corrupt Practices Act of 1977

1. INTRODUCTION II. FACILITATION PAYMENTS: THEORY AND PRACTICE A. Greasing the Wheels of Industry B. Reasons Why Supplying Facilitation Payments Has Been Viewed as Necessary C. Companies Are Leading Governments III. A RECENT TIMELINE OF LEGISLATIVE APPROACHES A. The FCPA and its Exception Allowing for Facilitation Payments B. The OECD and the Global Attitude Shift Against Facilitation Payments C. The U.K. Bribery Act 2010 IV. RECOMMENDATIONS FOR AMENDING THE FCPA AND ENFORCING A PROHIBITION OF FACILITATION PAYMENTS A. Lex Non Curat De Minimis B. A Brief Look at Global Enforcement Philosophies C. A Practical Framework for Facilitation Payments Enforcement V. CONCLUSION I. INTRODUCTION

   Bribery blights lives. Its immediate victims include firms that lose out unfairly. The wider victims are government and society, undermined by a weakened rule of law and damaged social and economic development. At stake is the principle of free and fair competition, which stands diminished by each bribe offered or accepted. (1) This statement issued by Kenneth Clarke, the United Kingdom's Secretary of State for Justice, is a good reminder regarding who loses out when corrupt payments are permitted as a part of doing business. (2) We all do. (3)

   Bribery of government officials is an issue the United States did not address with legislation until after 1852. (4) Indeed, it wasn't until Theodore Roosevelt's administration started prosecuting a small number of Congressmen for taking bribes and kickbacks that national rancor over government corruption was finally met with action. (5) The increasingly suspicious attitude toward domestic government officials carried forward through the 1970s and Watergate, and eventually culminated in the world's first major piece of international anti-corruption legislation, the Foreign Corrupt Practices Act (FCPA), in 1977. (6) The FCPA was a clear statement of leadership for the United States in the international fight against corrupt payments to government officials. (7) Reflecting back on the passage of the FCPA, Andrew Pincus, General Counsel of the Department of Commerce, testified that:

   [In 1977], the United States Congress passed the Foreign Corrupt Practices Act, becoming the first country to make it a crime for its citizens and companies to bribe the officials of another country. This was a courageous and farsighted action for our country to take, and one that reaffirmed our leadership in the regulation of international business practices. (8) Despite the potential of the FCPA, it had "little to no effect in its first twenty-five years of existence." (9) This has changed dramatically, however, in the past decade. (10) FCPA enforcement is rising significantly in terms of prosecutions, magnitude of fines, and number of deferred prosecution agreements (DPAs) entered into. (11)

   Even though this is a step in the right direction with regard to prosecuting and preventing high value transactions "influencing any act or decision of a foreign official," "small" or "routine" facilitation payments are still overlooked. 12 This is because an exception in the FCPA expressly allows for these. 13 The United States has lost some of its global anti-corruption leadership status because of this exception, and it is time for an amendment to the FCPA removing it. (14)

   Section II of this comment will address and explain facilitation payments and why it is no longer acceptable to regard them as a normal part of doing business. Section III briefly compares the FCPA's facilitation payments exception with the conscious lack thereof in the U.K. Bribery Act 2010. (15) It also reviews how the OECD has played a role in elevating this topic for debate with the Department of Justice and the public in general. (16) Section IV looks at the current practical and theoretical arguments being made for and against allowing facilitation payments under the FCPA and advocates for prohibiting them. Most importantly, it analyzes the practical implications involved with enforcing a prohibition of facilitation payments under the FCPA and makes four recommendations which would aid in making a prohibition of facilitation payments under the FCPA more effective. Finally, the Conclusion to this Comment briefly compares the likely costs of anti-facilitation payment enforcement efforts with the benefits that stamping them out would achieve.

2. FACILITATION PAYMENTS: THEORY AND PRACTICE

   1. Greasing the Wheels of Industry

      Facilitation, expediting, or so-called grease payments are payments made to government officials for the purpose of securing routine service. (17) Such routine services are generally regarded as "ministerial," or those for which the government official has no discretion, (18) At bottom, though, these labels are nothing more than euphemisms for what they really are: bribery. (19)

      "Facilitation payments are legal bribes--I mean it walks like a bribe, it talks like a bribe and it quacks like a bribe. Calling it something else does not mean it is not a bribe." (20) Literally the only difference between these so-called "grease payments" and other bribes made to foreign officials is the fact that they are made in exchange for routine services that a foreign official is obligated to perform. (21) The OECD has characterized the practice of making facilitation payments as "corrosive" for more than a decade now. (22) Presumably this language is being used because facilitation payments undermine the effectiveness of anti-corruption measures aimed at other, larger corrupt payments. The "corrosive" buzzword has carried itself beyond the pages of the OECD convention now, with the United Kingdom's former Director of the Serious Fraud Office (SFO) (tasked with anti-bribery enforcement like the U.S. Department of Justice and Securities and Exchange Commission) using this word in speeches to attorneys about the subject. (23) He has stated: "These payments have a corrosive effect ... Corruption becomes systematic and endemic in the society [in which facilitation payments are paid] and produces a culture in which others look for much larger bribes as well ..." (24) Beyond the moral decay that facilitation payments cause among the front lines of government, law enforcement, and industry, is the other meaning of the word corrosive--that companies, taxpayers, and citizens can expect to pay more and more for the same government service they are already entitled to as long as grease payments are made. (25)

      Michael Volkov, a prominent attorney and frequent commentator in the area of corporate compliance, has said that nobody could argue against such an "idealistic goal" as "international prohibition of facilitation payments." (26) Unfortunately, it is not that simple. (27) Apparently Volkov knows this, because he actually expresses the opinion that an outright prohibition of facilitation payments just is not enforceable. (28)

      By definition, facilitation payments are small, routine, and made to the likes of customs officials, police officers, inspectors, and other low-level government agents. (29) The practice of making routine payments is engrained in many cultures as a requirement to "lubricate the wheels that bureaucratic friction would otherwise grind to a halt." (30) This is why finding ways to eliminate facilitation payments, while keeping the "wheels" of industry moving without grease, is such a challenge. (31)

   2. Reasons Why Supplying Facilitation Payments Has Been Viewed as Necessary

      When the FCPA was originally enacted in 1977, the U.S. government did not contemplate the degree to which American businesses would be placed at a disadvantage by its unique payment transparency requirements. (32) Notably, most nations did not have comparable laws at the time and some even suggested that foreign bribes "be considered ordinary and necessary business expenses which received tax deductions." (33) This early posture of international anti-corruption legislation highlights the fact that doing business in certain countries, without the ability to make facilitation payments was, and in some cases still is, viewed as impossible. (34)

      Two economists have grappled with what has come to be known as the "efficient grease" hypothesis, which deals with this line of thinking. (35) The major premise of this hypothesis is that "corruption can improve economic efficiency and that fighting bribery would be counter-productive." (36) One economic study based on industry survey results and formulated to test this theory gives a somewhat surprising answer. (37) It found that companies that pay bribes are actually faced with more, not less, costs and red tape associated with managing their business activity and relationships with foreign officials. (38)

      Despite facilitation payments being pronounced and proven theoretically inefficient in academic circles, it is likely that they will still appear very expedient to, for example, a project manager trying to unload crates of equipment at a foreign port or an executive trying to clear customs at a tiny third-world airport. (39) Indeed, among those nations that have already made the decision to prohibit facilitation payments in their anti-bribery legislation, there is recognition that enforcement and actual elimination of the practice will take a considerable amount of time and "sustained commitment to the rule of law." (40)

   3. Companies Are Leading Governments

      A benchmarking survey of seventy-six companies from around the globe, run by TRACE International, showcases some fascinating trends in the corporate attitude regarding facilitation payments. (41) The findings of this survey reveal that seventy-six percent of responding companies believe "it is possible to do business successfully without making facilitation payments given sufficient management support and careful planning." (42) Furthermore, ninety-three percent of these respondents indicated that their jobs would actually "be easier, or at least no different, if...